MSFT Stock: Why Microsoft Corporation Could Be a Great Dividend Stock

The Next Big Thing for MicrosoftDividend investors don’t usually shop in the technology sector, but they might make an exception for Microsoft Corporation (NASDAQ:MSFT) stock.

Microsoft paid its first dividend back in 2003. Moreover, the company has been increasing its quarterly dividend for more than a decade. (Source: “Dividends and Stock History,” Microsoft Corporation; https://www.microsoft.com/investor/Stock/StockSplit/default.aspx, last accessed March 10, 2016.)

From its first quarterly dividend of $0.08 in the fourth quarter of fiscal 2004 to today’s $0.36, Microsoft’s quarterly dividend has been growing at a compound annual growth rate of 14.65%. Now that’s impressive!

What makes Microsoft stock really special is that other than offering solid dividends, the company also has enormous growth potential.

MSFT Stock: The Next Big Thing for Microsoft?

You see, with your usual dividend stocks, such as those making consumer goods or offering financial services, it’s not that easy to grow their giant businesses. Microsoft, on the other hand, is a tech giant that might be able to build the next big thing.

I’m talking about “Microsoft HoloLens,” the company’s foray into augmented reality (AR). According to Goldman Sachs, the virtual and augmented reality market could become an $80.0-billion industry by 2025, making MSFT stock’s foray into the tech market a potentially very lucrative step. (Source: “Virtual Reality Could Become an $80 Billion Industry: Goldman,” CNBC, January 14, 2016.)

Basically, Microsoft HoloLens projects a virtual world on top of the real world through a pair of holographic lenses. After putting on the headset, users can create and shape holograms with gestures. The experience looks absolutely mind-blowing.

Of course, there are already more than a handful of players in the AR/VR world, so what can Microsoft offer that others can’t?

Well, as it turns out, Microsoft HoloLens has one crucial advantage—you don’t need a computer to use it. The headset is powered by Microsoft’s own “Holographic Processing Unit” (HPU) featuring Intel 32-bit architecture.

That is, HoloLens offers a self-contained augmented reality experience. The same cannot be said for its competitors. Facebook’s “Oculus Rift,” Samsung’s “Gear VR,” and the HTC “Vive” can only be used when connected to a PC or a smartphone.

The Bottom Line on MSFT Stock

At the end of the day, let’s not forget that other than side projects like HoloLens, Microsoft’s core business is still going strong. For instance, Microsoft’s “Windows 10” and “Office 365” have become increasingly popular, with Office 365 in use at four out of five Fortune 500 companies. (Source: “Microsoft Earnings Conference Call,” Microsoft Corporation, December 10, 2015; https://view.officeapps.live.com/op/view.aspx?src=http://www.microsoft.com/global/Investor/RenderingAssets/Downloads/FY15/Q4/TranscriptFY15Q4.docx.)

Also, note that the software business offers substantially higher margins compared to most hardware businesses. Therefore, continued success in Microsoft’s Windows operating system and Office productivity software would be a welcoming feature in the eyes of investors.

Combining a solid core business, enormous potential, and a 2.77% dividend yield, dividend investors should take a serious look at MSFT stock.

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